Government plans can’t rely on determination letters for issues involving pickup plans, excess benefit arrangements

Governmental plan sponsors who apply for determination letters cannot rely on a favorable letter for whether: (1) contributions made to the plan are the employer’s “pick-up contributions,” or (2) the plan has a qualified governmental excess benefit arrangement, according to the IRS. However, sponsors may apply for a private letter ruling from the IRS for these matters.

“Pick-up contributions”

For a governmental plan to have a valid “pick-up contributions” arrangement, the employer’s duly authorized person must state in writing that the employer will make the contributions to the plan but designate them as employee contributions and employees must not have the option to receive the contributions directly in cash or by an election to defer them either before or after the date the employer pays them to the plan.

Excess benefit arrangement

The plan benefits under a qualified governmental excess benefit arrangement aren’t considered in determining whether it meets the general annual Code Sec. 415 limits, the IRS stated.

For a governmental plan to have a qualified governmental excess benefit arrangement, it must:

• maintain a portion of the plan to solely provide participants with annual plan benefits that exceed the limits of Code Sec. 415,

• not provide the participants an election to directly or indirectly defer compensation to this portion of the plan, and

• pay these benefits from a trust solely maintained to pay these benefits.

Private letter rulings

The IRS noted that governmental plan sponsors may request a private letter ruling from the IRS for a determination that their plan has a valid “pick-up contributions” arrangement under Code Sec. 414(h)(2) and all related revenue rulings, or a ruling that their plan’s excess benefit arrangement is a qualified governmental excess benefit arrangement under Code Sec. 415(m)(3).

Source: IRS website, April 24, 2013.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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